‚ÄĘ NGC‚Äôs cash flow wor¬≠ry¬≠ing

‚ÄĘ T&TEC a ma¬≠jor prob¬≠lem.

‚ÄĘ Busi¬≠ness mod¬≠el needs chang¬≠ing

Hav­ing record­ed an his­toric loss of $316 mil­lion for its half-year 2020, two char­tered ac­coun­tants have con­tend­ed that the re­al vul­ner­a­bil­i­ty lies with­in the Na­tion­al Gas Com­pa­ny (NGC ) of T&T cash flow.

In an in­ter­view with the Busi­ness Guardian, Char­tered Pub­lic Ac­coun­tant (CPA) Prakash Ram­lakhan pre­dict­ed that the NGC could be in re­al trou­ble if it does not do some­thing soon.

‚ÄúThey will con¬≠sume all their cash, if it stays this course. They will run out of cash in two years if they fail to col¬≠lect cash.‚ÄĚ Ram¬≠lakhan said.

Ac­cord­ing to Ram­lakhan who is al­so a Char­tered Fi­nan­cial An­a­lyst (CFA), NGC’s so­lu­tion to it’s cash prob­lem is to im­prove on cash col­lec­tion, es­pe­cial­ly with large clients.

Ram¬≠lakhan con¬≠tin¬≠ued: ‚ÄúOth¬≠er¬≠wise, if they don‚Äôt col¬≠lect, then they are go¬≠ing to con¬≠sume their cash and per¬≠haps by 2022-2023 they could be in a cash deficit po¬≠si¬≠tion.‚ÄĚ

NGC’s chair­man Con­rad Enill ad­mit­ted that cash man­age­ment was a ma­jor chal­lenge fac­ing the NGC and it had tak­en ac­tion to ad­dress it.

‚Äú‚ÄĚOf course it takes cash to run the busi¬≠ness, and yes NGC is con¬≠cerned about the cash flow man¬≠age¬≠ment in the or¬≠gan¬≠i¬≠sa¬≠tion and that‚Äôs why we en¬≠tered in¬≠to ne¬≠go¬≠ti¬≠a¬≠tions to try and re¬≠duce the im¬≠pact of the T&TEC sit¬≠u¬≠a¬≠tion by get¬≠ting the gov¬≠ern¬≠ment to guar¬≠an¬≠tee the bor¬≠row¬≠ing so at least we can clear that out, but that‚Äôs a short term so¬≠lu¬≠tion. The longer term prob¬≠lem we are work¬≠ing through,‚ÄĚ Enill told the Busi¬≠ness Guardian.

NGC’s cash prob­lem was not on­ly re­vealed in the 2020 half year state­ments but, the trend was al­ready start­ing to show in its 2019 an­nu­al re­port.

In its 2019 con­sol­i­dat­ed state­ment of Cash Flows, NGC record­ed net out­flows of cash for its op­er­at­ing ($959mil­lion), in­vest­ing ($1.6bil­lion) and fi­nanc­ing ac­tiv­i­ties ($668mil­lion).

Where­as in 2020, net cash gen­er­at­ed from op­er­at­ing ac­tiv­i­ties stood at $54 mil­lion (be­fore ad­just­ments NGC post­ed a $253mil­lion loss from op­er­at­ing ac­tiv­i­ties, but the net cash used for in­vest­ing and fi­nanc­ing ac­tiv­i­ties were post­ed at $51 mil­lion and $81mil­lion re­spec­tive­ly.

For its half year 2020, the com­pa­ny’s cash and cash equiv­a­lents at the be­gin­ning of the year dropped by 47 per cent from $6.8bil­lion to $3.6bil­lion.

Com­ment­ing on the NGC’s half year 2020 cash flows, Char­tered Cer­ti­fied Ac­coun­tant (AC­CA) Ian Nar­ine in­di­cat­ed that the com­pa­ny’s cash flows for the pe­ri­od re­flect an evo­lu­tion of the NGC’s cash flow chal­lenges.

He said: ‚ÄúLast year NGC post¬≠ed a prof¬≠it but there were work¬≠ing cap¬≠i¬≠tal chal¬≠lenges…that neg¬≠a¬≠tive¬≠ly im¬≠pact¬≠ed the cash flow po¬≠si¬≠tion.‚ÄĚ

Ac­cord­ing to Nar­ine, these work­ing cap­i­tal chal­lenges faced by the NGC are re­lat­ed to prob­lems with cash col­lec­tion as it re­gard the re­la­tion­ship with T&TEC.

In the NGC’s 2019 an­nu­al re­port, the Group con­vert­ed trade re­ceiv­ables of $3.5 bil­lion (US$524 mil­lion) for un­paid gas sales to a ten-year loan fa­cil­i­ty is­sued in two tranch­es at six per cent per an­num.

T&TEC was sched­uled to be­gin to pay the first tranche (with prin­ci­pal amount of $1,776.5 mil­lion (US$262 mil­lion) at in­ter­est rate of six per cent) to the NGC from June 2020 as T&TEC was giv­en a one year mora­to­ri­um on re­pay­ment of prin­ci­pal and in­ter­est.

The sec­ond tranche (with prin­ci­pal of $1,776.5 mil­lion (US$262 mil­lion) at in­ter­est rate of 6 per cent) com­mences in 2024 as T&TEC was giv­en a five year mora­to­ri­um on re­pay­ment of prin­ci­pal and in­ter­est.

Nar¬≠ine said: ‚ÄúThe con¬≠ver¬≠sion of a trade re¬≠ceiv¬≠able to a loan in or¬≠di¬≠nary cir¬≠cum¬≠stances may be¬≠ing in¬≠to ques¬≠tion whether the pur¬≠chas¬≠er is able to pay for goods or ser¬≠vices sold.‚ÄĚ

How­ev­er, he high­light­ed that T&TEC is a Statu­to­ry Cor­po­ra­tion and there­fore op­er­ates as an ex­ten­sion of the Gov­ern­ment of T&T, not­ing that it is high­ly un­like­ly that a sale to a state au­thor­i­ty will be chal­lenged on the ba­sis of col­lectibil­i­ty.

Nonethe­less, Nar­ine in­di­cat­ed that the is­sue is one of cash flow and whether NGC can con­tin­ue to op­er­ate ef­fi­cient­ly if it is pro­vide a ser­vice from which it is not gen­er­at­ing cash.

He said: ‚ÄúIt is like¬≠ly that some¬≠where else in its op¬≠er¬≠a¬≠tions NGC will have to fi¬≠nance this cash short fall and this may be tak¬≠ing place at a cost to the NGC‚ÄĒa cost that is not priced in¬≠to the ex¬≠ist¬≠ing terms with T&TEC.‚ÄĚ

Fur­ther­more, Nar­ine con­tend­ed that a big chal­lenge for the NGC is the short­fall in pay­ments from T&TEC, which has af­fect­ed the cash flow of the gas com­pa­ny.

Ac­cord­ing to Nar­ine, those cash flows car­ry an op­por­tu­ni­ty cost to NGC in terms of the com­pa­ny’s abil­i­ty to un­der­take ex­pan­sion and growth projects.

If NGC is suc­cess­ful in some of these ini­tia­tives, Nar­ine ex­plained that it can pos­i­tive­ly im­pact its busi­ness mod­el.

He said: ‚ÄúCash is a nec¬≠es¬≠sary part of this tool kit and work¬≠ing cap¬≠i¬≠tal chal¬≠lenges will make it even more chal¬≠leng¬≠ing to nav¬≠i¬≠gate the cur¬≠rent en¬≠vi¬≠ron¬≠ment.‚ÄĚ

Oth¬≠er chal¬≠lenges high¬≠light¬≠ed by Nar¬≠ine was that the price for nat¬≠ur¬≠al gas on the Point Lisas In¬≠dus¬≠tri¬≠al Es¬≠tate and the shut down of plants on the es¬≠tate would have a sig¬≠nif¬≠i¬≠cant im¬≠pact on NGC‚Äôs op¬≠er¬≠a¬≠tions. He said: ‚ÄúThis is just seeks to high¬≠light the im¬≠por¬≠tance of cash gen¬≠er¬≠a¬≠tion from oth¬≠er ar¬≠eas of the op¬≠er¬≠a¬≠tions to al¬≠low for growth and ex¬≠pan¬≠sion.‚ÄĚ

So far for the half year, Nar­ine ex­pressed that the neg­a­tive cash flow changes to NGC’s work­ing cap­i­tal has con­tin­ued due to the op­er­at­ing en­vi­ron­ment where the com­pa­ny record­ed a loss be­fore tax of $252 mil­lion.

Ac­cord­ing to Nar­ine, in times when the op­er­at­ing en­vi­ron­ment is chal­lenged it is a com­pa­ny’s cash buffers that will help it stay the course.

He added that the com­pa­ny still has some wig­gle room but as cash flows de­cline in­vest­ment ac­tiv­i­ty can be paused and div­i­dends may be cut.

Enill ad­mit­ted that if gov­ern­ment al­lowed the com­pa­ny to re­tain more of its earn­ings it will be good for the or­gan­i­sa­tion but in­sist­ed that this de­ci­sion was com­plete­ly out its hands.

Mean¬≠while, Ram¬≠lakhan added that the cash ac¬≠cu¬≠mu¬≠la¬≠tion for pri¬≠or years sup¬≠port¬≠ed NGC‚Äôs op¬≠er¬≠a¬≠tion in 2019. He ar¬≠gued: ‚ÄúIf they have not ac¬≠cu¬≠mu¬≠lat¬≠ed suf¬≠fi¬≠cient cash in 2019, the NGC would have had to source cred¬≠it to main¬≠tain its spend¬≠ing and go¬≠ing for¬≠ward, the cash po¬≠si¬≠tion look very un¬≠com¬≠fort¬≠able for NGC un¬≠der ex¬≠ist¬≠ing con¬≠di¬≠tions.‚ÄĚ

Ram¬≠lakhan added that the cash flow ‚Äúlooks very weak‚ÄĚ for the NGC as com¬≠pa¬≠ny is burn¬≠ing more cash than it is gen¬≠er¬≠at¬≠ing, not¬≠ing that part of the cash flow chal¬≠lenges has to do with the re¬≠ceiv¬≠ables that are not be¬≠ing col¬≠lect¬≠ed on a time¬≠ly ba¬≠sis, which is plac¬≠ing ad¬≠di¬≠tion¬≠al pres¬≠sure on the NGC.

Go­ing for­ward, Ram­lakhan in­di­cat­ed that NGC would have to relook its busi­ness mod­el to en­sure that it is com­pet­i­tive, by hav­ing sus­tain­able de­mand, sup­ply and mar­ket ac­cess and per­haps more par­tic­i­pa­tion oth­er than be­ing a sup­pli­er.

He said: ‚ÄúThey may have to do some JV‚Äôs (joint ven¬≠tures) so that they cre¬≠ate val¬≠ue at dif¬≠fer¬≠ent lev¬≠els out¬≠side of the sup¬≠ply to en¬≠hance prof¬≠itabil¬≠i¬≠ty for the group.‚ÄĚ

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